The taxman wants its share of the Sh7.2 billion compensation that Nairobi's Westgate Mall received from Kenindia Insurance following a terrorist attack in 2013.
The Kenya Revenue Authority has demanded tax on a Sh600 million payout that Kenindia remitted to Westgate in 2014. KRA wants Sh221 million in taxes.
Sony Holdings, which owns Westgate Mall, now says the taxman has unfairly classified compensation as revenue instead of capital to justify the tax demand.
The mall had a property damage and loss of rental income insurance cover with Kenindia, which has been releasing the compensation sums since 2014.
The attack saw 67 people killed and hundreds injured after gunmen made their way into the mall and opened fire on shoppers.
Westgate reopened its doors in July 2015 but the reconstruction of the destroyed sections has yet to be completed.
DEMANDING TAXES
Sony Holdings has now accused the Commissioner of Domestic Taxes of muscling out Treasury CS Henry Rotich in demanding taxes totalling Sh380 million for the years 2014 to 2016.
The mall's owners wrote to Mr Rotich in March last year seeking exemption from paying withholding tax on rental income. Mr Alex Trachtenberg, a Sony Holdings director, says KRA illegally relied on the firm's letter to Mr Rotich to impose several additional and punitive taxes.
The taxman is yet to respond to the suit.
RECEIVED COMPENSATION
"Having variously confirmed by two audits that Sony Holdings had properly declared all its income and expenses and properly excluded the Sh600 million received as compensation for loss of buildings and outbuildings from corporation income, the respondent's sudden about-turn over the matter claiming tax over the same as corporate income is an unbridled violation of Sony Holdings' right to legitimate expectation," Mr Trachtenberg says in court filings.
Sony Holdings insists that earlier audits had confirmed that the Mall's taxes were not only fully paid, but that it was entitled to a refund of Sh33.1 million.
The mall owners argue that KRA duped them into thinking that they would be granted some tax exemptions if it constructed roads and drainage facilities surrounding Westgate. The firm says it spent millions constructing Peponi and other roads.
